Arcane Topics in Economics and Philosophy, Interspersed with Various Distractions

May 24, 2007

Immigration and the Harberger Triangle

I just had a brain-wave for a dissertation topic. In a debate on immigration at EconLog, anti-immigration commenter Tino responds to my argument that the consumer-surplus benefit to natives from immigration outweighs the effect on natives through the tax-and-transfer system even if the latter is negative (though I don't think it is):

7. “but it's pretty clear they overwhelm the pocket-change redistribution that immigrants cause through the tax-and-transfer system, even if those did (contrary to fact) hurt the native-born.”

More evidence of bias! Borjas estimate of gains from trade to Americans is 10 billion per year. The lowball estimate of the tax-and-transfer estimate of low skilled immigrants is 90 billion per year.

Now, I've seen this Borjas analysis. It's based on a method of estimating the gains from trade known as the Harberger triangle. The Harberger triangle, however, tends to yield quite low estimates of the gains from trade. Most trade economists today think the gains from joining in trade and globalization are much bigger-- and certainly empirically "globalizing" countries have a much bigger growth advantage over non-globalizers than Harberger triangles can explain. So trade economists have constructed various models to show why this might be the case.

What I could do is revisit Borjas's estimates of the gains of trade from immigration by applying more up-to-date international trade models to the analysis of the gains from immigration. Probably this would lead to much larger estimates of the gains from immigration, but (if I do it) we'll see.